Island Savings

Planning an education fund

While you may be able to manage your child’s day-to-day school expenses with careful budgeting and a lesson about wants and needs, saving for post-secondary education requires a long-term plan.

 

Growing an education fund starts with a plan

School is back in session for another year and whether your children are off to kindergarten or starting their high school days, the back-to-school bills are inevitable. While you may be able to manage your child’s day-to-day school expenses with careful budgeting and a lesson about wants and needs, saving for post-secondary education requires a long-term plan. Fortunately, there are some great government incentives to help you start growing your education fund today.

Getting an early start is a worn out cliché when it comes to savings but it couldn’t be truer for education. While a cookie jar to hold your savings may suffice in the short-term, you need to open a Registered Education Savings Plan (RESP) for your child if you really want to cash in on the benefits.

The first step is to get a social insurance number for your child and then make an appointment with the RESP expert at your local branch. Individual and family plans are available and contributions can be shared between siblings. One word of caution is that contributions and grants are allocated to a specific child in your family plan so you’ll need to exercise some caution when funds are withdrawn. Your RESP advisor can provide more details and advise you on a plan to suit your needs and answer any questions you may have.

Once you have your RESP, you can apply for the British Columbia Training and Education Savings Grant as soon as your child turns six and collect $1200. Make sure to apply before their ninth birthday or you’ll miss out entirely on this one. Since this is a relatively new program, there are special provisions for kids born between 2006 and 2010—children born as early as 2006 are still eligible to apply.

Another great program which you can take part in right from the birth of your child is the Canada Education Savings Grant (CESG). You’ll receive a 20% grant on every dollar you put into your RESP up to a maximum of $2500 each calendar year until your child reaches the age of 17. In other words, if you put in $2500, the government will add an additional $500 in grants. The lifetime grant limit is $7200 but you can carry forward unused grant room, so even if you get off to a late start you can still catch up. Start out with smaller contributions and as you grow older and have more disposable income, make larger contributions and collect your grant from previous years. Low and middle-income families may also qualify for an additional grant of up to $100 per year.

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One thing to note is that contributions to a RESP are not tax deductible and any withdrawals by your child are treated as taxable income. Most students don’t have a lot of income so the taxes could be at a low rate but it is certainly something they should be aware of.

Despite the appeal of free government money, it is still difficult for many of us to find the funds, especially the $2500/year needed to take full advantage of the CESG program. The key is to make regular contributions and get into the saving mode regardless of whether or not you will be able to max out your yearly grants. One option would be to use a portion of your new Canada Child Benefit and set up a recurring monthly deposit to your RESP. You can also check out our Big Change savings plan, coming in October 2016, which helps you put a little money away every time you use your debit card.

Education costs continue to rise and you should try to get going on a savings plan as soon as possible. Even a small education fund will keep more career options open for your kids and could help reduce their student loan balance, so they can get on with the rest of their life when they finish their studies.

Check out our RESP guide for all the details and learn how a RESP can give your kids a head start.